Executive Magazine

Brandcell – Joe Ayoub (Q&A)

by Executive Staff July 1, 2009

written by Executive Staff

Aveteran of the communications and marketing field with over 25 years of experience, Joe Ayoub successfully managed Proctor & Gamble’s brand communications for years before taking on the task of managing and restructuring the Intermarkets Agency Network’s offices in Kuwait and Lebanon. He then founded Spidermonkey Communications in 1999 in partnership with the WPP group. Ayoub recognized the need for Levant-based companies to adopt the concept of strategic guidance, and created BrandCell consultancy in 2008 to develop key local and regional clients’ branding strategies in the service, retail and media sectors. Executive recently sat down with Ayoub to get his views on strategic branding strategies in the Levant region.

E Can you explain your conception of ‘strategic branding’ being used or abused in the Levant?
Branding as a philosophy is nothing new. But people use the name for a zillion different descriptions: from describing a corporate identity logo to delivering a complete brand strategy. Unfortunately in the Middle East and in Lebanon specifically, the understanding of the importance of strategic branding, as opposed to design branding, is extremely low, even though the impact of having a good brand strategy is extremely high. This we have seen in the West when it comes to names like Starbucks or Apple. You see that they have crafted a strategy around their brand and they consistently try to improve it and deliver on it time and time again. In Lebanon that delivery, when we are talking about the service industry, is extremely erratic. There is no consistency. Not because the people are not up to it or not qualified, but they don’t have a sort of ‘brand guideline’ to follow that will ensure the right ‘key messages’ that they have to communicate day in and day out to their customer, are being done in a very consistent way which over time, will build this effect.

E Why do you think there has been reluctance in the region to embrace the concept of strategic branding as central to a marketing strategy, and instead focus on disparate messages similar to those we witnessed during Lebanon’s recent elections?
The issue is not that they are reluctant; the issue is that they don’t understand it. This is a role that someone, a consultancy or a specialized agency, is supposed to educate its clients about. The election issue is a very good example of how you see the segregation of incoherent messages within an extremely short period of time.
You see the difference when you look at the West if you followed Obama’s campaign or Sarkozy’s campaign. They take one message and they keep hammering it home over and over. They are adamant to remain focused on a particular point because their strategy is that this is the weak point of their opponent and they have to hit at it. In Lebanon they tend to react to things. If one party launches a slogan or a key message, all they care about is how they are going to respond to this. So they are distracted by their own strategy and the same extends to businesses. If someone claims something about his product and I sell a similar product, I tend to think: ‘There must me something good about this, let me do it. Why should I bother and strategize and dig for my own benefit? Let me consider that we are in the same category and benchmark.’

E What would you advise entrepreneurs in the region to do in order to reap the benefits of strategic branding?
Unfortunately, you cannot teach an old dog new tricks and it costs much more to fix something that is broken or radically wrong than to do it right from the beginning. Entrepreneurs normally don’t have a lot of money because they are starting afresh and have scarce resources. But at the same time, they have the opportunity to do things right as long as they focus on bringing something new to the table. Today, entrepreneurs have to clearly define what business they want to be in.
Even if they are in Information Technology and they want to sell computer solutions, [strategic] branding will help them define whether they are in the business of selling software, hardware, total solutions, supplying material or whether they are a niche brand or a mass market brand. They need to define their territory clearly and then they need to define how they want to position themselves within the competitive landscape and, most importantly, how they are going to translate this into their daily work.

E So what should they focus on?
Entrepreneurs have an important asset they can bank on — their personalities. I really encourage entrepreneurs to put their personal branding up front. They probably don’t have a lot of money. But if they have a charismatic personality, a clear sense of purpose for their company and a long term vision, then they should communicate it. We all know Richard Branson. What sells the Virgin brand more than Richard Branson? What sells Apple’s brand more than Steve Jobs or the stories people circulate about him on a daily basis in the news? Entrepreneurship by definition is a very personalized business and [entrepreneurs] should not be afraid, if they have all these qualities, to brand themselves first.

E In markets where branding is fully developed we have seen brands such as Starbucks employ methods such as store clustering and below-market price cutting to push out smaller niche companies, small to medium enterprises and start-ups and thus limit avenues for entrepreneurship. What do you think about this argument, and how can you preserve the ability of new businesses to enter the market space and at the same time push
branding to the limit?
In a free market economy you have to accept the laws of this free market. You have to accept the laws of supply and demand and, at the same time, that the best man wins. This is a cycle. Before Starbucks there were others that were famous. Probably the small private neighborhood coffee shop and then Starbucks came and standardized the whole thing. In five or 10 years we might see that standardization is no longer en vogue and probably more authentic local neighborhood touches will become extremely important once again. Branding doesn’t come out of the blue. Branding is a natural reflection of what consumerism is all about. It is about understanding the psychological needs of consumers. Branding is like a human being. A brand is born, it is young, it reaches a maturity stage after a period of growth, and then it could reach a decline or death stage. So we have to look at the brand as a human being. We give it a name, we give it packaging or a dressing like you dress a child; you give it certain values the same way you educate your children, and then you put it on the market as an adult. Then it has to perform. Either it will perform or it will underperform and be left out of the market. If their customers start to feel that Starbucks is overdoing it and it is in a monopoly stage, it will be the customer who will stop it first. No law or anti-trust law can do as much as the veto power of the customer and we have to trust our customer. What will dictate things is the consumer’s own perception of what is right and what is wrong in the free market economy. Whenever you do something out-of-line, the verdict will come from the customer. So managing your brand is like managing your children; you have to really make sure that it behaves, [that] it is constantly polite, constantly performing in its environment, and it’s up to you to manage it properly.

July 1, 2009 0 comments

Lebanon

Energy – Like oil and water

by Sami Halabi July 1, 2009

written by Sami Halabi

There’s an old saying in the oil industry: “Oil is like a wild animal. Whoever captures it has it.” The late American oil magnate, Jean Paul Getty, may have been talking about the oil and gas market of the 1950s, but his words continue to ring true. Ever since a joint US-Israeli exploration group headed by Texas-based Noble Energy discovered a large natural gas deposit at Tamar (90 kilometers off the coast of Haifa) in January, the proverbial animal has been officially let out of its cage in the Eastern Mediterranean.

Analysts estimate reserves at Tamar of around 142 billion cubic meters (BCM), valued at around $3.6 billion, with a $1.5 billion extraction cost. The discovery has been heralded by Noble’s Chairman and Chief Executive Officer Charles Davidson as possibly “the largest discovery in the company’s history.” For a company like Noble that boasts assets of more than $12 billion, that’s no passing phrase.
A few months after the initial discovery, Noble found another deposit of gas at Dalit, 13 kilometers east of Tamar. That discovery is expected to yield reserves of around 14 BCM, or around 10 percent of the Tamar find. Noble declined to comment on the finds and Executive is legally forbidden to correspond with Noble’s Israeli partners.
The amount of gas present in the two fields could potentially serve Israel’s gas demand for a decade, or even longer.
“We are witnessing an historic moment in Israel’s energy market,” Israeli Infrastructure Minister Binyamin Ben Eliezer said at the time of the Tamar find.

Noble Energy’s operations in Israel and Cyprus

Source: Noble Energy.

Tectonic structure of the Eastern Mediterranean

Source: Noble Energy.

A thorny relationship

At present Israel depends on Egyptian gas exports to run its power plants. The agreement for Egypt to supply Israel with a constant stream of gas comes under a clause of the Camp David accords, signed in 1979, and stipulates that the two parties will set a fixed price for each million thermal units (MMBTU), the standard unit of measurement for commercial gas exports, which corresponds to around 28 cubic meters of gas. The export of Egyptian gas to Israel has been the cause of much controversy in Egypt where anti-Israeli public sentiment is pervasive 30 years after the two countries’ leaders signed a peace treaty.
The issue of Egyptian gas exports to Israel remains a thorn in the side of both governments; politically for the Egyptians and in terms of energy planning for the Israelis. Hence, while energy independence for Israel would constitute a negative for Egypt’s current account, it could also translate into some much needed wiggle room for Egypt’s autocractic government.
“The opposition parties are always questioning the wisdom of supplying Israel with gas,” says Ibrahim Saif, resident scholar specializing in the political economy of the Middle East at the Carnegie Middle East Center. “Egypt is [always] trying to downplay that subject because there is a sentiment in Egypt that is against supplying Israel with gas.”

How much do they really have?

While Israel’s estimated gas reserves seem promising, they are still just that, estimates. The numbers currently available only indicate a ‘geological reserve’ based on seismic surveys conducted from above the seabed. The fields still have to undergo an appraisal phase to ascertain how large the ‘proven reserve’ is and exactly how much of the gas can actually be extracted.
“The initial discovery does not provide a clear picture as to the structure of the field. You need a year until it becomes a proven reserve and only part of it can be extracted,” said Ziad Arbahe, a Syrian energy consultant.
Arbahe explained that commonly only 30 to 40 percent of a geological reserve can be extracted. There have been rare cases where up to 50 percent has been extracted, but this usually requires that a company inject water into a field, increasing operational costs and often damaging the field itself.
“In general, when there is a find, countries and companies are optimistic about the amount. But when you start to produce… the initial estimation is usually much higher than the actual amount,” Arbahe adds.

On the Lebanese side…

The recent discoveries have “caused a flurry of interest in the Lebanese offshore area,” says Charles Harmer, executive vice president of multi-client services at Spectrum Geo, the company that previously performed preliminary seismic surveys for the Lebanese government between 2000 and 2007.
Fawaz Mourad, the regional representative of Petroleum Geo-Services (PGS), agrees. His company and Spectrum Geo have both conducted seismic surveys in Lebanon’s offshore area, which is part of the “Levantine basin.”
The Levantine basin is the underwater geological structure that is located beneath the territorial waters of Lebanon, Israel, Cyprus and Syria. The basin itself has “similar structures and formations” in both Israeli and Lebanese waters which makes “offshore Lebanon even more interesting and more prospective,” says Mourad.
Lebanese oil and gas exploration began in the late 1960’s and early to mid-1970’s with the drilling of several wells across the country. Then, like many things in Lebanon at the time, exploration came to a grinding halt when Lebanon’s civil war began in 1975. After the war, Syria and Lebanon formed the “Committee of Cooperation between Lebanon and Syria for Oil Exploration in Lebanon,” which lasted until Syrian troops pulled out of Lebanon in 2005 after the assassination of the former Prime Minister Rafiq Hariri.
“The order from [current Syrian] president Assad’s father was to help Lebanon by all means possible, even for free, to get oil out of Lebanese ground,” says Ali Haidar, a former member of the committee and current petroleum studies professor in Beirut. “There were some favorable interpretations of this behavior on some Lebanese sides and on others there were unfavorable [interpretations].”
During the run-up to Lebanon’s parliamentary elections, Nabih Berri, the country’s speaker of parliament and member of the current opposition, stressed the importance of “encouraging the exploration of [oil and gas] prospects in all the Lebanese territories,” ostensibly referring to the continuation of onshore exploration.
However, little headway has been made in Lebanon since pre-war drilling, despite the fact that Lebanon is part of the same geological structure where proven gas deposits have been found in Syria “only 40 kilometers from the Lebanese border,” says Haidar. Today, Lebanon’s old wells still sit idle and efforts to resume exploration have been “postponed” according to a senior executive at Lebanon’s Ministry of Energy and Water.
Ghazi Youssef, a member of Lebanon’s new ruling parliamentary coalition who used to manage the oil and gas file as an advisor to former Prime Minister Rafiq Hariri in the earlier part of this decade, is nonetheless pessimistic about the prospects of oil and gas aground in Lebanon. He says that the issue of exploring these wells should be put on a “back burner” because “all the reports I have seen in the past do not really show the possibility of a major find [onshore]. It’s mostly tar and other residue but not hydrocarbons. Things point more to the offshore fields than they do onshore.”

Move to water

Indeed, since 2000 the focus of the Lebanese government and international oil and survey companies has been on offshore exploration. In 2002, the Lebanese government entered into an agreement with Spectrum Geo to perform a two-dimensional seismic survey off the coast of Lebanon to supplement a survey completed in 2000, which did not require government permission “because of the location and the fact that there was no previous work in the area,” says Harmer. Two-dimensional seismic surveys are used to identify breaks and possible traps in geological formations where there is a high possibility that oil or gas may be present.
The agreement gave Spectrum Geo the right to gather data off the Lebanese coast at its own cost and to later sell the data to prospective oil companies on a licensing basis. The Lebanese government would then receive a percentage of the license agreement and get a copy of the final data.
“We had to try to sell it as many times as we could to cover our costs and then make a profit on it,”says Harmer.
The agreement itself, however, ended in 2007, and the government says Spectrum Geo has requested another five year agreement with the Lebanese state.
In both 2006 and 2007, the government commissioned another Norwegian survey company, Petroleum Geo-Services (PGS), to perform three-dimensional seismic surveys off the coast of Lebanon. Three-dimensional studies subject geological formations to sets of waves which then ‘bounce back’ off these structures to provide a clearer view below a surface.
But several experts have questioned the manner in which the three-dimensional studies were conducted. “Normally when you have such a huge possibility… you do a lot more than this,” says Haidar. Harmer of Spectrum agrees. “It is very unusual to shoot a [three-dimensional seismic survey] like that. I still don’t understand why they have shot those.”
Mourad of PGS, however, insists that the data acquired was “comprehensive” and that “there is enough data to allow the companies to drill. They don’t need to do more 3-D surveys. So if a bid-round takes place over the areas which are covered by the 3-D survey, then the oil companies are able to drill immediately, thus saving a lot of time,” he says.
According to Sarkis Hlaiss, general manager and head of Lebanon’s gas and oil installations committee at the Ministry of Energy and Water, the main reason that a more extensive survey was not done is that the Lebanese government and PGS are currently performing another two-dimensional survey on Lebanon’s Exclusive Economic Zone (EEZ), which was only delimited — the process by which a country defines its borders — in May by a committee at the energy and water ministry. A source at the United Nations, who spoke on condition of anonymity, said that the issue of border demarcation between Lebanon and Israel has yet to be officially resolved by the UN and stressed that maritime borders would only be addressed once the border delimitation on the ground has been completed. PGS insists that the issue is inconsequential.
“Even if they haven’t officially delimited it, it doesn’t mean that it is disputed. There is no dispute,” said Mourad.
In any case, most experts agree that it is premature to consider the possibility of common resources before all the results of Lebanon’s seismic surveys are completed to ascertain if there are fields shared with Israel. The results of the survey are expected to become available within four to five months.
“By the end of September we will have the complete data in two-dimensions and three-dimensions from PGS,” says Hlaiss.
The new survey will employ seismic technology developed by PGS that enables seismic waves to overcome the distortions caused by layers of salt present across the Levantine Basin. The results of the survey will provide data that is much clearer and more useful to prospective oil companies and the Lebanese government, who can negotiate better if a bidding round ever materializes.

Dollars for data

According to Mourad, PGS has invested “tens of millions of dollars” to acquire data off the Lebanese coast. The company “hopes to recover its investment by selling the data” to oil companies looking to enter any Lebanese oil and gas market, once the government starts a bidding round and offers licenses to companies to start drilling offshore.

“PGS has not sold any data for the simple reason that companies, when they own data, need to know that they can do something with it, like participate in a bid round,” said Mourad.
But in order to open up a bidding round, Lebanon would need to have a law that dictates the terms and obligations of both the Lebanese government and prospective oil companies — something the Lebanese government has been dragging its feet on for decades.
“Until now we don’t have a law, it’s a disaster,” says Hlaiss. All the countries of the Eastern Mediterranean who have access to the Levantine Basin have legislation that apportions their maritime territory into blocs, ready for sale to prospective oil companies looking to explore their offshore prospects. Cyprus opened its first bidding session in 2007, as did Syria.
Fortunately for Lebanon, they have some friends in high places within the oil and gas industry. Since 2007 the Norwegian Agency for Development Co-operation (NORAD), as part of its ‘Oil for Development’ program, has been assisting the Lebanese energy ministry to draft a new law to the tune of “several million dollars to start putting legislation in place [and] actually start a bid round,” says one oil and gas industry executive who spoke on condition of anonymity.
Martin Yettervik, counselor at the Norwegian Embassy in Lebanon, says that the program is about institution building as opposed to drilling and is aimed at helping the Lebanese avoid the pitfalls of an energy dependent economy.
“For any country that is new to petroleum, it is important to take into account the economic effect of the petroleum economy, because it is different from other kinds of economic factors,” says Yettervik. “There are examples around the world where, when the petroleum economy dominates, it is to the detriment of the other fields in the country.”
Countries such as Nigeria and Iran have felt the pain of an economy overly dependent on petroleum resources. However the risk to Lebanon is not just economic. The potential for oil and gas revenues to play into Lebanon’s polarized and volatile sectarian political mixture is very real. One look at the electricity or telecommunications situation in the country and an ineffective or politically tainted oil and gas industry could be “another killer,” according to professor Haidar.
Nonetheless, Yettervik insists that the program has not become “a tool for one or another power factor in a country” and that “since the beginning we have seen a trans-political cooperation, even when the country was in the deepest of crisis,” referring to the 18-month political standoff that led to the May 2008 conflict in Lebanon.

Norway’s helping hand

The Oil for Development program is set to carry on until 2011, at the behest of the Lebanese government. In order to expedite the process of drafting the still non-existent law, the Norwegian government has contracted an international law firm to assist the energy ministry with setting up a bidding round and has trained several officials at the ministries of energy and water, and finance and environment. Both Spectrum Geo and PGS’s head offices are located in Norway, but Hlaiss insists that the Norwegian government “didn’t ask for anything in return.”
Yettervik admits that the program “gives the Lebanese authorities familiarity with the Norwegian system,” but insists that any collusion between the Norwegian government and its companies “would be contrary to the spirit of the program.”
The government has confirmed that the new law will allow Lebanon to alter the output of any firm that extract’s oil or gas, which, if done hastily, could damage any potential field and substantially reduce its long term productivity. Moreover, the law will oblige future oil companies to adhere to the Lebanese labor law, which compels them to hire a majority of Lebanese citizens if qualified persons are present in the country.
According to the energy ministry and the Norwegian embassy, the draft exploration law is all but completed. The text, which is still in English, is complete and is in the translation process. Once in the Lebanese Parliament, it will be subject to the scrutiny of the country’s conflicting political interests.
“We are trying to push [the law] through this government,” says one government official who spoke off the record. “If we don’t, and the minister [of energy and water] changes, it will take us another three months to explain to the new minister what we are doing and then who knows [how long it will take].”
MP Youssef expressed his coalition’s desire to depose the current minister, whose party is part of the opposition, but insists that it will not derail the process.
“We believe that when someone comes to power you don’t just take everything and throw it down the drain; there’s continuity. We have to deal with [the law] and try to finish it as soon as possible.”

Sharing with the enemy

Perhaps the most important point to consider in Lebanon’s energy saga may be that if Tamar, Dalit or another field is a common field between Lebanon and Israel then the latter is currently usurping Lebanon’s natural gas.
“Whoever starts before gets the resources because of drainage,” says Haidar, adding that the clock is now ticking down on the Lebanese government’s opportunity to tap this resource before the Israelis do.
Contested borders have always posed a problem in the Middle East, especially when it comes to hydrocarbon resources. The “neutral zone” between Saudi Arabia and Kuwait that was demarcated by the Anglo-Turkish convention in 1913 still exists today. It has been a source of ongoing disputes over maritime borders between Kuwait and Iran for some time, although Kuwait and Saudi Arabia have come to an agreement over how to share the resources present in the area. Lebanon and Israel however remain in a state of war, and Israel still occupies some of Lebanon’s territory. Hence the issue of sharing resources, if indeed they do exist, seems far-fetched at best; more likely, perhaps, is the prospect of further conflict between the countries over energy.
“This is not going to be an easy issue,” says Saif. “If Israel starts to pump and utilize [any common resource], it would be a source of contention and Lebanon will find itself forced to move and to block any Israeli unilateral move.”
Most experts agree that it is highly improbable that the recent finds at Tamar and Dalit constitute a common field because of the distance between the finds and the border area, but that does not preclude the possibility of it being one or that one could exist, given the commonalties between the Lebanese and Israeli areas of the Levantine Basin. Just to make sure Israel is aware of Lebanon’s territorial concerns, the prime minister’s office has sent a letter to Noble demanding that the company does not encroach upon Lebanese maritime territory, according to a government source who spoke on condition of anonymity.
Even if Lebanon does manage to pass a law, starts the bidding process and brings in the oil companies in to begin drilling, the economic benefits will not be felt until much further down the line. The Tamar field is not expected to produce commercial quantities of gas until at least 2013. One energy consultant offered to bet this journalist $1,000 that commercial quantities would not be extracted before 2015. Moreover, any potential Lebanese field may take even longer enter production.
“In eight years, if we find something, we can actually open the lid and start making some money. Whoever wakes up first gets the money and the resources,” says Haidar.
If the Lebanese don’t wake up soon, they may well find themselves snoozing through yet another regional boom and lose the chance to revive their debt-ridden economy.

July 1, 2009 0 comments

Companies & Strategies

Deyaar Development – Markus Giebel (Q&A)

by Executive Staff July 1, 2009

written by Executive Staff

Markus Giebel is the chief executive officer at Deyaar Development PJSC, one of the region’s biggest real estate companies. Executive Magazine had the pleasure of sitting with Giebel as Deyaar unveiled the recently completed project at Saifi Village II, which is comprised of 72 upscale apartments and penthouses and is located in the Beirut City Center master development.

E This is not the first time you invest in Lebanon. What makes this country, in your opinion, a good destination for real estate investment?
It is the first project that we have completed in Lebanon. Other than that we have a total investment of $200 million in the country. But the first project we completed is the Saifi II, which is a $100 million project. The sad portion of it is that many things got destroyed, and someone had to rebuild it. So there is an intrinsic and real need for real estate. It is a privilege actually to be one of the people who can rebuild, and Solidere does a wonderful job. To be a partner with Solidere and a part of the rebuilding is something anybody can be proud of. The second thing is that if you look at the financial crisis, Lebanon became one of the most attractive places. So historically there is an intrinsic need and if you are looking forward, this country looks very strong. We have real GDP growth, a real growth of 1.6 percent positive. The world is 1.9 percent negative. So there is something which is very intriguing. For us as a developer, we develop in developing countries. There is a developing element of this country so there is an incentive that we like.

E So you think that Lebanon has good market fundamentals?
There are many fundamentals. We come from Dubai; many people from our part of the world love the place here. So there are many people who enjoy the countryside, the people, the food. So there are these elements; the other element is that there is a real demand for real estate.

E The project is 100 percent sold. Who are the people who bought in? Lebanese mostly or foreigners?
There is a complete mix. There is a vacation element of it. People would come a month or two per year. And there is also real demand from Lebanon. Many of them are also Lebanese expatriates. That is exactly one of the areas we cater to. Starting with the new project, there are three elements. There is the vacation element, the expat element, and there is the extrinsic element. That is what makes Lebanon so thriving.

E Which market segment does the project target? What is the price range?
It is an upper-scale development; there is a luxury element to it. There are some penthouses which are pure luxury, and there are also higher mid-end affordable elements in it. It is mid-high. But the penthouses are high-end. The price range doesn’t help you much, because we launched the project in 2007, and prices in 2007 were very different than 2009. In these three years the prices went up. So anyone who bought with us when we launched is a very happy person. People who bought now have higher prices. There is a tremendous increase in prices.

E What added value does the project have? Why should someone buy into this project and not in another project?
If you look at the project, there are many added values. First, there is the master developer Solidere. The company itself brings credibility to any project. And Solidere does a wonderful job. Second, the location of the project. It is overlooking the sea. Another added benefit is the proximity: in five minutes you are everywhere. So there are many elements. But again when you buy a property, it is a very personal thing. For some people, things are very important but I think for most of the people the elements we have covered in our development are appealing. If you like to be in Beirut and you want to have something calm, close to everything, overlooking the ocean, in a master development from a well-known name, then we have a good product.

E At the World Economic Forum this year, you said you will shift focus to emerging markets — is this a part of it?
What happened is that with the crisis, many people have to rethink. We are very strong in Dubai. We have a very strong foundation there. What we do is a pitch-and-catch strategy. We take the best practices we developed in Dubai and they are pitched out into different countries. For example in Lebanon someone catches our best practices and localizes them and implements them. That makes us a little bit stronger than other people because we have this strong foundation. So that is our strategy all along. And we will focus on emerging markets. Why emerging? Because there is no value added in developed countries. What value added do I have in New York? We really go into countries where we can add value, and the developing countries. Lebanon is a different case because in one sense it is developed, and in the other sense it is still in need for some rebuilding and some assistance. So Lebanon is in a very special situation. But we do believe we can deliver a lot of value to the country.

E Are you planning any future investments in Lebanon?
We are now looking. With the first project we were really happy. You always test the market with the first project. If it doesn’t go very well, you reconsider. But the first project went very well, which makes it very easy to go to the next step. We are actively looking for many reasons. One, we know the country much better, we found strong partners and we have a very positive first experience so, yes, we would like to. We look more to our partner Solidere. It is not an exclusive partnership, but a very strong partnership.

July 1, 2009 0 comments

Lebanon

Architecture – Project Lebanon 2009

by Executive Staff July 1, 2009

written by Executive Staff

Project Lebanon 2009 opened its doors again this year at BIEL Exhibition Center to gather local and international engineers, architects, building materials specialists, investors and other key market players under one roof. Exhibitors came from Italy, Germany, France, Iraq, Switzerland and other countries looking to establish partnerships and enter the Lebanese and regional markets.

“Lebanon is back in business,” said Fadi Jreissati, vice president of operations at IFP Group, Project Lebanon’s organizers. The event’s packed parking lots, entrance queues and the rush on the stands were proof that Jreissati was right.

“We have an 80 percent increase in size,” he said. “We have sold every single meter we have, and if we had known that elections would not have a negative effect on the exhibition, we would have opened the whole tent.”
The fact that the exhibition takes place in June has not helped it much recently. Last year, the conflict in May crippled the show and the parliamentary election this year also made some exhibitors shy away.
“We had a very bad edition last year; the conflict in May affected us very badly,” said Jreissati. “[This year] there are a lot of people who were afraid and did not participate.”

This year’s highlight

For the first time, Project Lebanon is hosting the “Sustainability Week” which includes a series of conferences tackling the issues of green building, sustainable architecture, water and energy conservation, as well as recycling and saving resources. A green pavilion is also included where companies either have new technologies to introduce or are offering consulting services to help implement green initiatives in new and existing buildings.
Since Lebanon is still taking its first steps toward achieving sustainability, the green pavilion at the exhibition attracted considerable attention. Most companies started working in the green field only recently, since this technology was prohibitively expensive to import and the Lebanese market was not welcoming to the idea.

Project Lebanon attendance

	2008	2009	% increase
Number of exhibitors	220	350	59
Number of national pavilions	4	9	125
Number of countries participating	11	23	109

Source: IFP Group

“We started two year ago,” said Mohammed Nasser, electric and power engineer at Somiral Energy, an importer of solar panels. “Before, it was too expensive and not very available. Now, it is more affordable.”
Another company, Schneider Electric, also started working on providing energy efficienct solutions for its customers in the last 24 months, by introducing electrical devices that consume less electricity or switch off automatically in order to save power, and other new technologies. By using these energy-saving products, industries can save up to 20 percent on electricity, while residential houses can save from 10 to 40 percent.
“We are in a world where we have a challenge,” said Julien Feghali, chairman and general manager of Schneider Electric East Mediterranean (SEEM), the Lebanese subsidiary of Schneider Electric. “We want to protect our environment and we have very tough objectives.”

Feghali explained that his company is currently getting positive feedback in Lebanon, which would not have been expected two to three years ago, because the concept was still new. Schneider is also working with the Ministry of Energy and Water, the Lebanese Order of Engineers and the Électricité du Liban to implement these solutions on the national level.
“The order of engineers has to play their role in terms of standardization. Sometimes you have to [implement] rules and regulations. We should work in the same [way] in Lebanon,” Feghali said.
Jad Bsaibes is a project engineer at Energy Efficiency Group (EEG), a Lebanon-based firm that offers consultancy services for existing buildings in order to find ways to save energy. He said many in Lebanon are open to receiving green technologies and services, but there are still some engineers who do not collaborate.

“Some work with us, and others don’t,” said Bsaibes, whose company is currently working on buildings such as Intercontinental Phoenicia Hotel and Studio Vision.
Michel Tannous, president of Entech Coatings, relocated his company from Canada to Lebanon six months ago, finding the country and the region offered a good opportunity to introduce his new coating technology. With a 25-year guarantee, Tannous explains that his new Entech Coatings Product would keep a building nicely painted for a long time while isolating the outside heat or cold, thus saving a large amount of energy used for heating or cooling.
“Everyone is excited and wants the product,” he said.

It’s not only private companies that were advocating for the use of green technologies at Project Lebanon, but also Lebanese nongovernmental organizations. For example, the Lebanese Solar Energy Society (LSES) was established in 1980 and aims to convince people to use solar and renewable energy. Other NGOs present at the exhibition were the Lebanon Green Building Council, and the Lebanese Association for Energy Saving and for Environment.
Even though private companies and NGOs are doing their part, there is no doubt that the path to sustainability will be hard, especially due to the lack of regulations backing these initiatives.
“The hardness softens when there is commitment,” said Dr. Sadek Owainati, co-founder of the Emirates Green Building Council. “It is not a one day, but a long-term commitment. It is not one group, but everybody.”

Owainati also emphasized the need to have a national strategy which is realistic and achievable. He also expressed his concern on the lack of urban planning in the city.
From this year on, Sustainability Week and the Green Pavilion will be a integral part of the Project Lebanon exhibition.
“It is definitely not the last time… It is a great start for us and a big success,” said Jreissati from IFP.
“We did a lot and we invested a lot in [Project Lebanon]” he added. “Everybody is so happy, and we are still at the beginning [in terms of] potential. There is so much to do, the event will still grow.”

July 1, 2009 0 comments

Capitalist Culture

Politics – Obama in Cairo

by Michael Young July 1, 2009

written by Michael Young

Barack Obama’s speech in Cairo last month provoked mixed reviews. Some said the US president spent too much time apologizing for American behavior in the Middle East; others said his words were just that, words, needing implementation. The only consensus reached was that Obama had been eloquent, but that somehow reminded us of the old Monty Python sketch where a game contestant fails to summarize Proust in 15 seconds, earning the consolatory words: “A good try though and very nice posture.”

Where Obama came up short most flagrantly was in his inability to define a clear position on political freedom, and how to advance it in the Middle East. In fact the president seemed to want to have his cake and eat it too. For example, in referring to the war in Iraq, Obama stated: “Unlike Afghanistan, Iraq was a war of choice that provoked strong differences in my country and around the world. Although I believe that the Iraqi people are ultimately better off without the tyranny of Saddam Hussein, I also believe that events in Iraq have reminded America of the need to use diplomacy and build international consensus to resolve our problems whenever possible.”

Indeed. But if Iraqis are “ultimately” better off without Saddam Hussein, what does that tell us about US policy when it comes to supporting Middle Eastern democracy and human rights? After all, neither diplomacy nor an international consensus would have ever freed Iraqis from being under Saddam’s thumb. So did the US do the right thing in getting rid of the Baath regime by force? Obama avoided addressing that prickly question.

This fuzziness permeated Obama’s later discussion of democracy in the region. The president pointed out: “So let me be clear: no system of government can or should be imposed upon one nation by any other.” But then he went on to say that this view did not lessen his commitment to governments that reflect the will of the people. Except that “America does not presume to know what is best for everyone.”
But hadn’t Obama just presumed to know that the Iraq war was beneficial for the Iraqi people, since he felt that they are better off without Saddam? Aren’t Iraqis better off without Saddam because the new system they now live under was imposed on them by an American led-invasion? And weren’t Obama’s bromides in favor of democracy and democratization not also statements implying that he presumed to know what was best for everyone?

If so, then why did the US president not just come out and state the obvious: that democracy, openness and pluralism are indeed better for all states, as is respect for human rights. Why did Obama prefer to avoid rocking the boat when it came to autocratic regimes in the region? Not a word was uttered on actual cases of human rights abuses, whether in Egypt, the country hosting him, or in any other part of the Middle East. Clearly, the president, for all his high-flying rhetoric, preferred to fall back on the aversion of political realists to involving the US in the region’s domestic affairs.
Equally interesting was what the president had to say about the Christian Maronite and Coptic minorities.
“Among some Muslims, there is a disturbing tendency to measure one’s own faith by the rejection of another’s,” he said. “The richness of religious diversity must be upheld — whether it is for Maronites in Lebanon or the Copts in Egypt.”

This advice Obama placed under the rubric of “religious freedom.” This was strange, because the problem of minorities in the Arab world is usually more a political than a religious one. What the Copts would like more of is political power, not the freedom to exercise their religion. As for the Maronites, their sense of decline is attached not to the fact that they cannot practice their religion, but that they feel their political power is waning.
All this leads to a disconcerting conclusion that Obama has few coherent views of political freedom in the Middle East. He overemphasized religion while underemphasizing how the US might address political matters, such as what to do about dictatorial regimes. He also failed to address the absence of democracy in the Middle East in illegitimate states that fail to fulfill the aspirations of their citizens; or what to do about minorities denied political power, both Muslim and non-Muslim.

Obama submerged his Cairo speech in the holy water of religion, but it is freedom, the failure of the Arab state, and the lack of accountability of regional regimes that are more central to the dilemmas the Middle East faces today. In one word, it is about politics, and on this Obama was too busy being polite to his listeners to raise the difficult questions he promised to raise at the start of what, in retrospect, sounded like a puzzling homily.
(Editor’s note: A version of this article first appeared on Harvard’s Middle East Strategy blog)

Michael Young

July 1, 2009 0 comments

Lebanon

Environment – A carbon-neutral car dealer

by Executive Staff July 1, 2009

written by Executive Staff

The Rasamny Younis Motor Company S.A.L (RYMCO) is taking steps to become the country’s most environmentally friendly automotive dealer. In May the company announced it will attempt to reduce its carbon footprint by reducing the amount of emissions it produces as it imports, distributes and sells cars, and by off-setting its remaining emissions.

EcoSecurities is the UK-based company working with RYMCO to identify and offset the auto dealer’s carbon emissions, which they will do through a local company, Sustainable Environmental Solutions (SES). SES will help RYMCO determine how greenhouse gases can be offset with what are known as Verified Emission Reduction units (VERs).

The first step to carbon neutrality is to determine the current emissions produced by RYMCO through its electricity usage, the diesel fuel used by the back-up generator, the staff’s international travel and the company’s own car fleet, said Rachel Mountain, head of global marketing at EcoSecurities.

Where emissions cannot be reduced by RYMCO, they will be off-set by EcoSecurities purchasing VERs on the company’s behalf.
In a voluntary carbon market, VERs are produced by companies who take action to reduce green house gases — by creating solar, wind, biomass or hydroelectric projects — and they are then sold to companies like RYMCO who want to reduce their carbon footprint.
“A VER has the equivalent of 1 ton of CO2 that is generated from the implementation of project(s) that has actually reduced greenhouse gas emissions,” Mountain said.

A VER is not a carbon credit that can then be traded by RYMCO but a mechanism by which EcoSecurities can verify that the auto dealer is carbon neutral — meaning the number of VERs equals the amount of emissions it produces. This certification can then be renewed on a yearly basis. RYMCO is taking the carbon reduction steps because of the nature of the auto industry, said Blanche Baz, public relations advisor for RYMCO.

“Being part of the automobile industry mandates that we take a responsible role for devising strategies to reduce CO2 emissions through increased energy and fuel efficiency,” wrote Charbel Abi Ghanem, RYMCO’s marketing manager, in a press release.
“Though our contribution is considered minute… we are confident that if more companies realize the impact simple measures such as these could have on reducing the harm to our environment, perhaps more of them will apply voluntary emission reduction.”

The corporate shift on the environment

“Environmental sensitivity is taking hold here,” said Sami Nader, economist and professor at Beirut’s St. Joseph University.
Given Lebanon’s fraught political structure, Nader believes companies benefit economically from demonstrating their environmental credentials as it is an issue that appeals across sectarian lines.
“Supporting the green cause does not involve taking any risks,” he said, adding that the message appeals particularly to younger consumers.
The power of the environmental pull is also recognized by the advertising industry, Nader said, which encourages companies to use their environmental credentials to shape their message.
Among the first organizations to approach carbon neutrality in Lebanon were the local offices of international banks, which recognized the appeal it would have with environmentally conscious consumers.

HSBC became Lebanon’s first carbon-neutral bank in 2005 and has continued to raise awareness of climate change, and its green friendly policies, by sponsoring the April HSBC Earth Race.
Bank Med has peppered billboards throughout the country with its own ‘happy planet’ environmental campaign, which features a sapling growing from a pile of money.
Foreign governments have also gotten in on the act. The British Embassy will work with Lebanese municipal governments to help reduce their carbon foot print.
This year the embassy will begin collaborating with EcoSecurities to reduce carbon emissions in three municipalities in South Lebanon, Mount Lebanon and Beirut.

Offsetting or opting out?

Environmentalists are concerned that the practice of offsetting emissions is an inefficient substitute for companies substantially reducing their own emissions.
The practice of offsetting emissions by purchasing carbon credits is popular among companies, and countries who are trying to reduce their emissions in accordance with the Kyoto Protocol.

The environmental benefit of the practice, however, remains unclear.
“Off-setting so far has been a failure,” said Arab Climate Campaign head Wael Hmaidan.
More than 50 percent of global offsetting projects have failed to produce expected emission reductions, Hmaidan said.

“The best thing [RYMCO] could do is stop selling 4x4s and go to hybrid or small emission [producing] cars,” he said, acknowledging that this may run counter to the company’s economic interests.
“Off-setting as a concept should not be perceived as a solution, as it is not,” he said. “But it is a step in the right direction.”

July 1, 2009 0 comments

Comment

Walid the weathervane

by Nicholas Blanford July 1, 2009

written by Nicholas Blanford

At a Washington Institute for Near East Policy conference in October 2007, Walid Jumblatt was asked by Dennis Ross, now Barack Obama’s point man on Iran, what Washington could do for Lebanon. Jumblatt, with a twinkle in his eye, replied: “If you could send some car bombs to Damascus, why not?”

The audience, few of them sympathetic to the Syrian regime, greeted Jumblatt’s comment with delighted laughter and prolonged applause.
Jumblatt, understanding his audience well, continued: Hezbollah is a “brigade or division of the Iranian Revolutionary Guards that occupy half of Lebanon, paralyzing the economy and facilitating Syrian efforts to kill us.”
It was vintage Jumblatt. Well, 2007 vintage anyway.

Among the leaders of March 14, Jumblatt, the “weathervane,” has typically been first to react to the changing climate: in the past 12 months, he has forged a rapprochement with his traditional Druze rival Talal Arslan in the wake of the May 2008 fighting, toned down his anti-Syrian rhetoric and more recently spoke of Hezbollah’s weapons in the context of a national defense policy.
It culminated in mid-June with a long-awaited meeting with Sayyed Hassan Nasrallah, Hezbollah’s secretary-general, in which the two discussed the need for a comprehensive reconciliation in the country.
The spirit of goodwill settling on Lebanon in the aftermath of the June 7 election largely derives from the rapprochement between Saudi Arabia and Syria in recent months, as both back rival political camps in Lebanon.
Vituperative rhetoric has been scaled down in the Syrian and Saudi media and there have been several low-profile diplomatic exchanges between Damascus and Riyadh.
If the Saudi-Syrian detente holds, it could spell a period of political calm in Lebanon, allowing for a relatively smooth transition from Fouad Siniora’s outgoing government to the new one, likely headed by Saad Hariri. The opposition could well forego their demand for a one-third veto-wielding share in the next government in exchange for guarantees by Hariri on key issues, chiefly Hezbollah’s arms. Hariri has said the fate of Hezbollah’s arms should be left to the national dialogue sessions, where the subject doubtless will be buried.

All this comes at the end of an eight-month wait-and-see period during which several elections, parliamentary and presidential, have been conducted. But the results of those elections have been something of a mixed bag.

The first was the election of Barack Obama as the new United States president. Obama, facing the immediate challenges of a global financial crisis and two wars, initially was not expected to focus much effort on the Middle East. But he has confounded expectations by emphasizing the importance of the Israeli-Palestinian peace process. In his recent address to the Arab world in Cairo he spoke at length on the Israeli-Palestinian conflict. However, he did not mention Syria once, indicating where his preference for progress lies. Indeed, the appointment of Jeffrey Feltman, who was US ambassador to Beirut during the Lebanese-Syrian crisis in 2005, as his main interlocutor with the Syrians was a signal in itself. Yes, Obama is willing to explore dialogue with Syria, but the administration is under no illusions about its success.

But Obama also has to contend with a right-wing government in Israel under the premiership of Benjamin Netanyahu, who took office in March. Netanyahu’s fragile coalition is dependent on the support of hardliners, such as his foreign minister Avigdor Lieberman. The initial test of Obama’s resolve, to many Arabs, lies in his ability to freeze Israeli settlement building on occupied Palestinian territory, and not to allow Netanyahu to fudge the issue with excuses about “natural growth.”

The third key election was in Lebanon, where the continuation of the status quo was confirmed by the March 14 coalition’s victory. Developments in Lebanon tend to be corollaries of developments elsewhere in the region, which is why the outcome of the Iranian presidential election, the last of the big four, is so important.
If Mir Hussein Moussavi had been elected president, it is unlikely that there would have been any significant changes to Iranian foreign policy, especially regarding the Arab world, support for anti-Israel groups and pursuing the nuclear program. The differences between the incumbent, Mahmoud Ahmadinejad, and his reformist challenger were over domestic policies. The importance of the result was one of perception rather than substance.

The US would have preferred to seek engagement with an Iranian government led by a reformist president, rather than someone distinctly lacking in diplomatic tact and widely vilified as a “Holocaust denier.” Ahmadinejad’s re-election will do little to ease the phobias of the Arab Gulf states toward their powerful Iranian neighbor.
So, a US administration committed to an Israeli-Palestinian breakthrough; a right-wing Israeli government squirming to maintain US goodwill while making no meaningful concessions to its Arab neighbors; no change in a Lebanon that is hoping for a period of stability; and an Iran, troubled by internal dissent, but still led by a president who relishes his image of defiance and obduracy.
How will this play out? Perhaps, we should keep an eye on Jumblatt for early hints.

Nicholas Blanford is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

July 1, 2009 0 comments

Money Matters

IPO Watch – The Saudi vanguard

by Executive Staff July 1, 2009

written by Executive Staff

The initial public offering market in June witnessed a continued pickup in activity following an apparent restoration of risk appetite on the part of investors, but IPO announcements were mostly dominated by Saudi companies. The Saudi Capital Market Authority appears to be resigning to IPO pipeline pressure, driven in part by the success of recent offerings such as Weqaya Takaful Insurance and Reinsurance Company’s IPO, which was three times covered.

Weqaya’s shares, which debuted on the Saudi exchange on June 20, soared 288% with heavy volume to $10.36, from an offering price of $2.67.
The largest IPO announcement of the month came from Saudi Steel Pipe, which plans to sell 16 million shares or 31.4% of the company in an IPO scheduled between June 27 and July 3. With shares offered at a price of $6.68 per share, Saudi Steel Pipe expects to raise $107 million, valuing the company at $340 million. GIB Financial Services is the share sale’s lead manager and will have the option to allocate up to 50% of the shares to individual investors, leaving the rest to the institutional buy-side.

Three local insurance companies also received approval from the Capital Market Authority to raise a combined $51.2 million through share offerings. The three insurers — General Cooperative Insurance, Global Cooperative Insurance and Buruj Cooperative Insurance — will offer 40%, 30% and 40% of their shares respectively for $2.67 each. IPO activity in the Saudi kingdom included the approval of Saudi Petrochem’s planned offering of 50% of its shares, and Al Khuraif Group’s announcement that it plans to offer some of its shares, or those of one of its units, to the public.

Saudi Al Mouwasat Medical Services said it plans to sell 7.5 million shares or 30% of the company in an IPO from August 15 to August 21, while healthcare and pharmaceutical company Banaja Holdings will also launch an IPO as it proceeds with its restructuring plans. Furthermore, the Aramco-Total $9.6 billion joint venture in Saudi Arabia, named Satorp, said it plans to sell off 25% of its shares in the refinery in the fourth quarter of 2010.

Still, IPO buzz was not limited to Saudi Arabia. Albaraka, Bahrain’s largest Islamic Bank, announced plans to list its shares on the Damascus Stock Exchange (DSE) by August, comforted by the 15% increase in the Syrian International Islamic Bank’s (SIIB) shares on their first trading day on June 4. Bank of Alexandria, a unit of Intesa Sanpaolo SpA, said it was holding talks with the Egyptian government to sell the state’s 20% stake in an initial public offering worth more than $300 million. The Qatari government also said it expects to take the Qatar Exchange public in the near future, while Dubai-based Noor Islamic Bank said it may offer part of the company to the public within three to four years.

Despite improving market sentiment, several public offerings were delayed until the effects of the global economic crisis have waned. Scotland-based oil and gas engineering firm Proclad Group said it has postponed the planned offering of 30% of the company on the Dubai Financial Market by almost two years to 2013. Burooj Properties, which is fully owned by Abu Dhabi Islamic Bank, also pushed its IPO date from 2010 to 2011 or later, citing the financial crisis as the reason behind the decision. Improving market conditions will also set the date for an IPO by Emirates Steel Industries, a unit of Abu Dhabi Basic Industries, which tied its public offering to the presence of suitable market conditions within one to two years.

In summary, the IPO pipeline remains flooded with delayed offerings pending clearer signs of a fundamental and sustainable recovery in credit flows and economic growth. Still, with Saudi Arabia leading the way in the number and size of public offerings, it is very likely that a cohesion effect could take hold and drive near-term IPO activity. In a new era of lower leverage and limited bank financing, acquisitions and expansion plans will rely in part on capital raised from share offerings. Therefore, IPOs will continue to take advantage of the relative stability in equity markets seen in the last few months, as well as strong investor demand for newly-listed shares.

July 1, 2009 0 comments

Banking & Finance

Money Matters by BLOMINVEST Bank

by Executive Staff June 24, 2009

written by Executive Staff

Regional stock market indices

Regional currency rates

Saudi Arabia’s Liquidity Reaches $267B

Saudi Arabia’s liquidity rose to 1 Trillion Saudi Riyal ($267B) as the Saudi Arabian Monetary Agency (SAMA) adopted a list of measures to enhance banks’ lending ability. SAMA cut interest rates five time since October to encourage banks to finance new projects. Nevertheless, banks are still cautious about lending that led non-statutory deposits with SAMA to hit 74 Billions Saudi Riyal ($19.7B). In a related economic news, the IMF forecasted that Saudi Arabia’s economy will shrink by 0.9% in 2009 as a drop in oil prices coupled with a global credit markets crisis will harm the economy by hurting exports, investments and consumer spending.

The Jordanian $10B Seawater Desalination Plant

In a strategy to save the Dead Sea from constant shrinking and to provide the Kingdom with much needed fresh water, the Jordanian government will implement a $10B seawater desalination plant project that is expected to be completed within 25-30 years. The project aims at addressing the country’s severe water shortage by providing 120 million cubic meters (mcm) of water in 2014 and expanding to 700mcm in later phases. The government also announced the development of other projects such as the manufacturing of military aircraft in Mafraq, in addition to the $100M loan agreement signed with the French Development Agency and the European Investment Bank for financing the Disi Water Conveyance Project. Worth noting that the Jordanian government and Shell signed an agreement where the latter will explore and extract oil shale reserves.

Kuwait’s Budget Surplus to Hit $20B

Kuwait’s budget may register a KD6.09B ($20.8B) surplus for the year 2008-2009, beating the budget draft projection of a KD7.5B ($25.61B) deficit, according to the country’s Finance Ministry. Total Revenues were KD21.1B ($72.8B), whereas expenditures totaled KD15B ($51B). Oil profits represented the bulk of revenues with a 94% stake ($68B), well above the forecasted ($40), as the 2008-2009 draft budget used an average oil price of $50 a barrel while oil peaked at $147.5 a barrel in 2008. Worth noting that the country posted a KD9B($30B) surplus in 2007-2008. Separately, in order to absorb the liquidity excess, the central bank of Kuwait issued KD908M of treasury bonds in 2009. The auctions were successful with a high bid to cover ratio of 7, as investors showed interest in the country’s bond market at a time when the Kuwaiti equity index is negatively performing throughout 2009.

June 24, 2009 0 comments

Capitalist Culture

America’s debate

by Michael Young June 24, 2009

written by Michael Young

Rarely has the Middle East been as distant as it is today from the principles of capitalist culture — a culture of open minds and open markets. Some markets are opening, very gingerly, but by and large the Arab world continues to perfect its reputation as a place where minds are kept resolutely closed.

Enter a recent article by Richard Haass, the president of the Council on Foreign Relations. Haass has always been among the more effective proponents of a realist foreign policy, whereby the US should pursue its international aims according to a cold reading of where its national interests lie, without making it a priority to spread particular values, whether political, economic or social.

Against this stands, supposedly, a more idealistic foreign policy, one focused on values. Idealists believe the US, and the international community in general, must make a priority of advancing human and humanitarian rights, freedom, democracy, and so forth. For this to be effective, it means that powerful states like the US must shape even the internal behavior of states less committed to these values. That is why in his article, Haass writes that no debate is more persistent than that between those who believe that American foreign policy’s principal purpose should be to influence the external behavior of other states and those who hold that it should be to shape their internal nature.

Haass’ argument is a cry of triumph. After eight years of the two George W. Bush terms, during which the US made (or claimed to make) the spread of democracy a national priority, particularly in the Middle East, Haass points out that Barack Obama seems to be a realist, and that this change is both desirable and necessary. Democracy promotion is an uncertain proposition, Haass writes, because mature democracies do tend to act more responsibly, but immature democracies can easily succumb to populism and nationalism. While the US should advance democracy, democracy promotion is too uncertain a proposition, and the world too dangerous a place, for it to occupy center stage in what the United States does.

One can dispute this. The essence of realism is that it breeds a fairly stable international order. Realists believe that if states are left to manage their own domestic affairs, without outside interference, they will generally behave responsibly. However, how true is that proposition? Is a dictator who has few constraints on his power more likely to respect international law, let’s say, than a democracy? Saddam Hussein did not. But even more minor figures, such as Presidents Bashar al-Assad of Syria and Omar Bashir of Sudan, have destabilized the countries around them in order to advance their interests and protect their regimes.

While dictatorships don’t necessarily breed instability, they are more prone to do so because their leaders do not fear accountability. What Haass gets wrong in his injunction that the US should not concern itself with the domestic abuses of dictatorships is that Arab dictatorships on the wane often create the most unstable regimes of all, because the only forces capable of replacing them are radical Islamists. What is the major source of regional instability in the Middle East today but an Iran that believes the time is ripe to impose its will on declining Arab despotisms, which are the same despotisms Haass insists the US should not try to change because that is not in its interest?

However, it is in economics that Haass’s arguments also require closer scrutiny. He writes that while encouraging the rule of law and civil society growth, the US must work with undemocratic governments because pressing problems, such as the economic crisis, nuclear proliferation and climate change, will not wait.

Quite right, but when Haass mentions the economic crisis, is he, similarly, of the view that state sovereignty should prevail? Is he just as clear that the principal purpose should be to influence the external behavior of other states, as realists believe, and not that it should be to shape their internal nature, as idealists believe?

Obviously, these neat absolutes don’t apply when it comes to the global financial crisis, which can only be resolved in a cooperative, global fashion where strictly national priorities, like protectionist measures, may endanger the financial interests of the international community. If ever there was mounting pressure on states to bring their domestic economies in sync with a global need, whether in terms of increasing government regulatory oversight, the loosening of credit, or the preservation of open markets, it is now. Obama may be a political realist, but he has led an international effort to revive the global economy that can only be deemed idealistic, especially in the moral opprobrium directed against those who made the crisis possible.

Realists believe they are back, particularly in the US. But there is much more to state relations than politics. No zero-sum game is possible between realism and idealism, because events invariably intervene to bring the ideologues of both back down to earth.

Michael Young

June 24, 2009 0 comments